Wealthscope Portfolio Scorecard:
by Pauline Shum Nolan, PhD, Founder
Portfolio analysis is inherently quantitative. You might be someone who will pore over all the numbers, or you might just be looking for a quick review of your portfolio.
Our scoring methodology was built and refined using millions of portfolios. Whether you are an expert or a novice, the Wealthscope portfolio scores give you an immediate, high-level overview. You can then decide if you want to dig deeper into the analytics to learn more. (We try to be as objective as possible, but you might have a specific investment strategy or goal that our scoring methodology does not represent.)
The 6 dimensions of your portfolio
We analyze your portfolio in many ways, from different angles; there are a lot of numbers. To contextualize them, we organize them into 6 dimensions:
This dimension focuses not just on past returns but also on adjusting returns for risk. The latter is important because very few of us are good at forecasting returns. So how much risk it took historically to generate a certain level of return is an important consideration when evaluating a portfolio. The score for this dimension is benchmarked to an automatically assigned, simple portfolio of one of two index ETFs (depending on your asset allocation). This benchmark is your cheap, passive alternative. The more you beat it, the higher your score.
Risk has an upside and a downside. We are naturally more concerned about losing money as the consequences could be dire. This dimension measures your portfolio’s downside risk, compared to the same benchmark portfolio as Performance. The less downside risk compared to the benchmark, the higher your score.
This dimension is about fund management fees - or the Management Expense Ratio (MER) - if you hold mutual funds and/or ETFs in your portfolio. Your fund returns are net of MER. Note that if your fund is an advisor share class, there is an embedded compensation in the MER for the advisor who sold you the fund. (However, any advisor fee you separately pay your money manager is not included because we don’t have that information.) The closer your portfolio weighted MER is to 3%, the closer it is to a score of 0% or a grade F.
Income could be dividends from a stock or distributions from a mutual fund or an ETF. It is a yield measured as a percentage of the recent price (stock) or the net asset value (fund). The closer your portfolio weighted yield is to 5%, the closer it is to a score of 100% or a grade A. We don’t know whether you are looking for income in this portfolio. If not, ignore this score.
Is your portfolio diversified and diversified efficiently? We go to town here to show you the different factors that your portfolio risk loads on, the risk/return contributed by each holding and the pairwise correlations. The more the portfolio risk is spread out, the higher your diversification score. Depending on your investment strategy and goal, you may be trying to avoid specific risk exposures, such as a sector or a macroeconomic factor. This is the place to check.
Consensus ESG ratings for your portfolio and individual holdings are from our partner, OWL Analytics. (Separate license; not available to all users.)